The Ukraine conflict has amplified the danger while also complicating the potential remedies to several economic issues. Price hikes might hurt countries that rely on the region’s abundant supply of energy, wheat, nickel, and other necessities.

An armed battle on Europe’s border is ready to send the global economy on another unexpected route after being pounded by the pandemic, supply chain chokeholds, and price jumps. 

The West’s retaliatory sanctions in response to Russia’s attack on Ukraine may not herald the start of a new global recession. The combined gross domestic output of the two countries is less than 2% of the world’s total. Many regional economies have recovered quickly from the pandemic slump and are in good health. 

Regardless of how severe the consequences are, that will be less severe than the coronavirus’s initial economic shutdowns in 2020. Here’s how the global economy might be affected. 

Energy 

Many European nations rely substantially on Russian energy, notably gas, through numerous critical pipelines. 

Even if this comes to an end, the heavy economic sanctions imposed on Russia may make it impossible for these nations to acquire gas.

Oil prices have risen as supply problems caused by sanctions imposed on Russian banks, while traders have hurried to find other oil supplies in an already constrained market.

Transport 

With global transportation already greatly hampered by the epidemic, the conflict is to exacerbate the situation. Ocean shipping and rail freight are the most probable means of transport to be impacted.

While rail only transports a small percentage of overall freight between Asia and Europe, it has been critical during recent transportation bottlenecks and is slowly rising. Sanctions against Russia are to harm rail traffic in many countries.

Supply chain

The world’s surprisingly strong rebound from the pandemic recession has left businesses struggling to obtain enough raw materials and components to make items to fulfill growing client demand. 

Overcrowded factories, ports, and freight yards have resulted in shortages, shipping delays, and increased pricing. Disruptions in the Russian and Ukrainian sectors might postpone a return to normalcy.

Food supply

Ukraine and Russia export 30% of the world’s wheat, 19% of corn, and 80% of sunflower oil, all are utilized in food processing. According to the Journalist, most of the windfall from Russia and Ukraine is going to poor, unstable countries like Yemen and Libya.

The risk to eastern Ukraine’s farms, and a halt to exports through Black Sea ports, could limit food supply when food prices are at their highest since 2011, and several nations are experiencing food shortages.

Inflation

The battle in Ukraine comes at a critical time for the Federal Reserve and other central banks. They were taken off guard by the unexpectedly strong rebound of the economy, which resulted in a spike in inflation during the last year.

Consumer prices in the United States increased 7.5% in January, the highest increase since 1982. In Europe, numbers released Wednesday indicate that inflation in the 19 nations that use the euro currency reached a new high of 5.8% last month, compared to a year ago.

“The dispute and sanctions that have impeded Russia’s commerce with the rest of the world are now threatening to increase costs, particularly in the energy sector,” Mark Zandi, chief economist at Moody’s Analytics, told the Associated Press. Together, Russia and Ukraine generate 12% of the world’s oil and 17 % of its natural gas.

Automobile Industry

The conflict brings a significant impact on the car industry. The industry’s problems are expected to be exacerbated by rising oil prices, as well as the continued shortage of transistors and chips, as well as other rare-earth metals. Furthermore, Ukraine is home to several enterprises that manufacture automotive components for manufacturers.

According to The Wall Street Journal, Leoni AG, which sells wire systems built-in Ukraine to European automakers, has closed its two operations in Ukraine. As a result, Volkswagen AG was closed down one of its German facilities.

What nations will suffer if Ukraine’s exports decline?

Ukraine’s trading partner is China (by exports). Ukraine sold $7.1 billion in products to China in 2020, accounting for 14.5 percent of all exports. China’s links to Russia may outnumber its reliance on Ukraine.

For access to western European export markets and the international banking system, China looks to Russia. Russian exports to China are seven times more ($49.1 billion) than Ukrainian exports.

Poland and Russia were Ukraine’s second and third-largest export partners, with Ukraine exporting $3.3 billion and $2.7 billion in commodities to these countries in 2020, respectively.

Conclusion

Despite being a minor country in global commerce, Ukraine is a significant player in several commodities. The invasion of Russia will have a direct worldwide impact on items such as sunflower seeds, maize, barley, and wheat, all of which Ukraine has a strong comparative advantage. Ukraine is also a lead producer of a variety of other goods.